Wal-Mart woes revive minimum wage debate

Wal-Mart caused a stir when it raised the pay of 500,000 of its workers. But now the US retail giant seems to regret the move after its profit outlook plunged, reviving a minimum wage debate.

The nation's biggest employer blames its recently released lower forecast on a plan it unveiled in February to hike minimum hourly compensation to $10, up from $7.25 at the federal level.  

Wal-Mart's move followed mounting criticism by labor unions and others that its low wages have locked workers into poverty and even pressured some of them to seek public assistance to make ends meet.

The decision had a snowball effect, spreading most notably to fast food chain McDonald's at a time when several US states including New York and major US cities -- Los Angeles and Seattle among them -- took similar action, effectively bypassing hostile Republicans in Congress.
But now Wal-Mart's woes could put the brakes on this trend. They have already prompted reactions from the large camp of those opposed to increasing the minimum wage, something that hasn't been done since 2009.

"Wal-Mart's announcement that their plan to increase wages is a contributing factor to their disappointing earnings report confirms the obvious truth that increasing wages has significant impacts, even on the largest of employers," Randy Johnson, an official with the US Chamber of Commerce, the powerful business lobby, told AFP.

The reasoning is that companies could jeopardize their bottom line by boosting paychecks.

"If even Wal-Mart feels the pinch then other employers will certainly have problems," Johnson added.

This argument has also been used to hit back at US fast food workers who have stepped up calls and actions demanding that the minimum wage be increased to $15.

"A rise in the minimum wage to $15 would very definitely mean that the jobs of large numbers of people would be at risk," said Tim Worstall, a fellow at the Adam Smith Institute in London.

"Companies would have to become intensive users of well-trained labor ... rather than extensive users of low skill and lowly paid labor," he wrote in a piece published by Forbes magazine.
- 'Absurd' -
Eyeing Wal-Mart, will other big businesses back away from paying their workers better?

That remains to be seen.

"The companies for whom it makes business sense will continue to do it," Michael Strain, of the conservative American Enterprise Institute, told AFP.

But "the others might think twice about this."

Strain noted that companies might be torn between wanting to score points with the greater public or win favor with shareholders.

"The corporate responsibility community will say: 'you raised your wages voluntarily, that's great,' but the business community and the shareholders are like 'jeez, this is really not helping our earning statements,'" he said.

Experts are divided.

David Cooper, economic analyst at the Economic Policy Institute in Washington, sought to put the negative impact of Wal-Mart's minimum wage hike into perspective.

"The notion that this pay increase will threaten the profitability of the company is absurd," Cooper told AFP, highlighting the fact that the measure's cost of 1.5 billion dollars represents just 0.3 percent of the giant's turnover.

"This is a drop in a very large bucket for them," he said, pointing to pressure from online competitors and a strong dollar as additional reasons for its lackluster performance.

Cooper and others maintain that the benefits of a minimum wage hike will only become apparent over time.

"Spending this money on the workforce may not please short-term investors but it's good business policy for the long-term health of the company," he told AFP.

Cooper added that, as the labor market improves, it will become harder to attract and retain the best people.

But "when you raise wages, workers will stay on longer," minimizing turnover, which comes at a significant cost, he said.